Making Health Insurance Work for Consumers

Healthcare in the United States is expensive. While a great deal of legislation has been aimed at keeping those costs down, looking at how it got so expensive in the first place is the key to reducing the costs. The employer-based health insurance model has disconnected patients from prices, removing a check on rising costs.

The nature of insurance is to protect against unforeseen and expensive problems. However, today, health insurance also covers routine care, such as essential check-ups that are neither unforeseen nor bank-breaking. This would be akin to expecting your auto insurance to cover oil changes you know are coming.

Because a significant part of the insurance cost is paid by their employer, most consumers don't even know the total price of their healthcare. Combined with the growth of the scope of health insurance, there is little market pressure on healthcare providers to control their costs, even for routine services.

Health insurance and employment were not always intimately tied. The connection has grown due to legislation and regulations that facilitated health insurance expansion beyond covering catastrophic events.

The first health insurance program in the United States was started in 1929 by Baylor University's hospital to help local teachers unable to pay their medical bills during the Depression. For 50 cents monthly, the teachers could get up to 21 days in the hospital when needed.

In 1932, a collection of hospitals in Sacramento, Calif., copied Baylor's idea but included all participating hospitals. By the following year, there were 26 hospital service plans overseen by a group that would later become Blue Cross.

Other insurance plans, such as prepaid group practice in 1929 (later to become Health Maintenance Organizations) and Blue Shield in 1939, started forming. The latter was well received, focusing on mining workers in the Pacific Northwest.

Congress got involved by passing the Stabilization Act of 1942, which limited wage increases to address WWII inflation. Despite the effort to control wages by government fiat, employers began offering health insurance instead of increased pay. Instead of limiting employee compensation, the Stabilization Act shifted it from income to health insurance.

The following year, the IRS determined that compensation in the form of health benefits would not be subject to income taxes. This put another thumb on the scale to shift compensation to health insurance instead of money.

Congress' first intentional foray into promoting employer-based health insurance occurred in 1947 by empowering labor unions to bargain for employer-sponsored health insurance through the Taft-Hartly Act. In two decades, America went from only 9 percent of the population having health insurance to 70 percent. By 1960, health insurance had replaced personal payment as the dominant way of paying for healthcare.

In 1965, employment-based health insurance had become so ubiquitous that Congress needed to step in to fill gaps. Medicaid and Medicare Parts A and B are designed to help retirees, people with low-paying jobs and the uninsured.

Congress tried to patch holes in the employer-sponsored system by altering Medicare and the State Children's Health Insurance Program (CHIP). A series of bills from 1988 to 1990 altered Medicare to allow low-income pregnant women and children to participate. CHIP expanded its insurance coverage in 1997 to cover kids in lower- and moderate-income families. Only a few years later, in 2003 and 2006, Medicare Parts C and D were enacted.

In 2016, for the first time, the government went beyond incentivizing employer-provided health insurance or filling in gaps and fully embraced the system. The Affordable Care Act mandated employer-based health insurance for businesses with 50 or more full-time employees.

From the first health insurance program at Baylor University Hospital to those provided today, health insurance has stopped being an actual insurance program. For 82 years, the federal government has been attempting to tip the scales toward employer-based insurance instead of allowing an open market of insurance options for consumers to choose from, which could still include employer-based insurance.